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The Environmental Protection Agency acknowledges its new mercury regulation for coal-fired power plants will be the most expensive in history, costing more than $10 billion annually. Yet incredibly, agency officials are still touting the rule as economic stimulus. "Every model that we run shows that it would actually create jobs," EPA Administrator Lisa Jackson said last year.
The problem is "every model" Jackson ran cooked the books in favor of EPA's optimistic conclusion. EPA's methodology simply assumes that no matter how high the costs go, the regulation -- known as the Utility MACT (for Maximum Achievable Control Technology) -- will always create jobs.
Although EPA does project job growth in the coal and pollution control industries, officials explicitly ignored the policy's wider economic implications. As its Regulatory Impact Analysis, or RIA, admits, "the Agency has not quantified the rule's effects on all labor in other sectors not regulated by the [standard]."
As a new Competitive Enterprise Institute, or CEI, study details, EPA's conclusion that the Utility MACT will create coal jobs is based on a single paper by Resources for the Future's Richard Morgenstern, which studied four industries in the 1980s -- pulp and paper, plastics, steel and petroleum -- and concluded that for every million dollars they spent on environmental compliance, 1.55 jobs were created in those industries.
Agency officials simply took this finding and plugged in the Utility MACT's regulatory costs. If this sounds simplistic, they actually show their work in a footnote of their RIA -- 1.55 jobs times $10.9 billion adjusted for inflation.
Using this formula, EPA can impose infinite costs on any industry and always claim that it will create jobs. Even if a rule costs trillions of dollars, EPA could still claim job growth,
EPA apparently has no reservations about applying this 1980s analysis of four other industries to today's coal industry. Morgenstern concluded that his analysis applied to "less competitive industries with inelastic demand" -- that is, industries that are unlikely to lose many customers due to incremental price increases. But coal isn't a "less competitive industry with inelastic demand." In fact, it isn't even an "industry" at all under Morgenstern's definition. It is a segment of the electricity-generation industry.
Coal is in constant competition with a direct substitute, natural gas, while industries like petroleum, which Morgenstern studied, have no viable substitutes. Morgenstern writes that "most plants should not be worried about losing business to other plants facing the same regulation." Yet natural gas generators aren't included under the Utility MACT, which means the exact opposite is true in this case -- coal plants should be worried about losing business. EPA naturally never acknowledges this caveat.
Worse still, EPA never mentions that the jobs Morgenstern found -- "maintenance and inspection activities" -- cost $640,000 each. While regulatory busywork might "create jobs," it's still bad for the economy overall.
As EPA's RIA notes, "regulation leads to more labor being used to create a given output," but that's bad for workers because the economic surplus from their "given output" is now divided among more workers, which lowers wages. Morgenstern also found that regulation leads to lower productivity, so the given output to be divided is even less, further reducing wages. According to NERA Economic Consulting, this rule will slash U.S. incomes by the equivalent of 200,000 jobs.
All these considerations ignore whether the Utility MACT is even necessary. As the CEI study describes, all these economic costs are being imposed in order to protect a nonexistent population of pregnant subsistence-level fisherwomen who consume more than 300 lbs. of fish per year from America's most polluted streams. Not only will the children of these theoretical women be saved, says EPA, but they will have jobs at coal plants twenty years from now. Not likely, I'm afraid.